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Workshop-8-Qs Warwick Assignments Andvsolutionsv

The document provides information and questions for a workshop on budgeting and management accounting. It includes: 1) Questions about defining budgets, their roles in organizations, and potential budgeting problems. 2) A case study with budgeting requirements for a company that produces two products, including budgets for sales, production, materials usage, purchases, labor, and production costs. 3) A cash budgeting exercise requiring calculation of materials purchases and cash budgets for three months. 4) A practice question requiring preparation of sales, production, materials usage, and production cost budgets for a company for the year 2020.

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Naresh Sehdev
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50 views3 pages

Workshop-8-Qs Warwick Assignments Andvsolutionsv

The document provides information and questions for a workshop on budgeting and management accounting. It includes: 1) Questions about defining budgets, their roles in organizations, and potential budgeting problems. 2) A case study with budgeting requirements for a company that produces two products, including budgets for sales, production, materials usage, purchases, labor, and production costs. 3) A cash budgeting exercise requiring calculation of materials purchases and cash budgets for three months. 4) A practice question requiring preparation of sales, production, materials usage, and production cost budgets for a company for the year 2020.

Uploaded by

Naresh Sehdev
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

WEEK 9 - (WORKSHOP 8): QUESTIONS

Q1

1) Define a budget. What different roles budgets can play in organizations?


2) Could you identify potential problems with budgeting and how to overcome those?
3) What is meant by a variance?

Q2

Cresta Ltd makes two products, Alpha and Beta. The company’s year-end is 31 December. The
following budgeted data is relevant for 2019:

Material prices:
Material M £2 per unit
Material N £3 per unit

Direct labour is paid £10/per hour. Production overhead cost is estimated to be £200,000.
Production overhead cost is absorbed into production costs using a direct labour hour absorption
rate.

Each unit of finished product requires:


Alpha Beta
Material M 12 units 12 units
Material N 6 units 8 units
Direct labour 7 hours 10 hours

The sales director has forecast that sales of Alpha and Beta will be 5,000 and 1,000 units,
respectively, during 2019. The selling prices will be:
Alpha £182 per unit
Beta £161 per unit

She estimates that the inventory at 1 January, 2019, will be 100 units of Alpha and 200 units of
Beta. At the end of 2019 she requires the inventory level to be 150 units of each product.

The production director estimates that the raw material inventories on 1 January, 2019, will be
3,000 units of material M and 4,000 units of material N. At the end of 2019 the inventories of
these raw materials are to be:
Material M 4,000 units
Material N 2,000 units

Required:
a) Prepare the following budgets for 2019:
1) Sales budget (£ value)
2) Production budget (units of Alpha and Beta)
3) Raw materials (M and N) usage budget
4) Raw materials (M and N) purchases (units and cost) budget
5) Direct labour budget (labour hours and labour cost)
6) Total production cost budget (Alpha, Beta and combined) and
production cost per unit of each product
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

b)
Describe the major steps involved in the process of budgeting and explain the importance of
identifying the principal budget factor in budgeting.

Q3

The following data and estimates are available for JUMBO Limited for June, July and August.

June July August


(£) (£) (£)
Sales 45,000 50,000 60,000
Wages 12,000 13,000 14,500
Overheads 8,500 9,500 9,000

The following information is available regarding direct materials:

June July August September


(£) (£) (£) (£)
Opening stock 5,000 3,500 6,000 4000
Material usage 8,000 9,000 10,000

Notes:
1. 10% of sales are for cash, the balance is received the following month. The amount received
in June for May’s sales is £29,500.
2. Wages are paid in the month they are incurred.
3. Overheads include £1,500 per month for depreciation. Overheads are settled the month
following. £6500 is to be paid in June for May’s overheads.
4. Purchases of direct materials are paid for in the month purchased.
5. The opening cash balance in June is £11,750.
6. A tax bill of £25,000 is to be paid in July.

Requirement:
(a)
Calculate the amount of direct material purchases in each of the months of June, July and
August.
(b)
Prepare cash budgets for June, July and August.

Q4 PRACTICE QUESTION
COOLBREEZE Limited is preparing its annual budgets for the year to 31 December 2020. It
manufactures and sells one product, which has a selling price of £150. The marketing director
believes that the price can be increased to £160 with effect from 1 July 2020 and that at this
price the sales volume for each quarter of 2020 will be as follows:

Sales Volume
Warwick Business School IB9AXO: Foundations of Financial and Management Accounting

Quarter 1 40,000
Quarter 2 50,000
Quarter 3 30,000
Quarter 4 45,000

Sales for each quarter of 2021 are expected to be 40,000 units. Each unit of the finished product
which is manufactured requires four units of component RUST and three units of component
TRUST, together with a body SHELL. These items are purchased from an outside supplier.
Currently prices are:

Component RUST £8.00 each


Component TRUST £5.00 each
SHELL £30.00 each

The components are expected to increase in price by 10% with effect from 1 April 2020; no
change is expected in the price of the SHELL. Assembly of the SHELL and components into
the finished product requires 6 labour hours: labour is currently paid £5.00 per hour. A 4%
increase in wage costs is anticipated to take effect from 1 October 2020. Variable overhead costs
are expected to be £10 per unit for the whole of 2020; fixed production overhead costs are
expected to be £240,000 for the year, and are absorbed on a per unit basis. Stocks on 31
December 2019 are expected to be as follows:

Finished units 9000 units


Component RUST 3000 units
Component TRUST 5500 units
SHELL 500 units

Closing stocks at the end of each quarter are to be as follows:

Finished units 10% of next quarter’s sales

Component RUST 20% of next quarter’s production requirements


Component TRUST 15% of next quarter’s production requirements
SHELL 10% of next quarter’s production requirements

Requirement:

(a) Prepare the following budgets of COOLBREEZE Limited for the year ending 31 December
2020, showing values for each quarter and the year in total:

(i) Sales budget (in £s and units)


(ii) Production budget (in units)
(iii) Material usage budget (in units)
(iv) Production cost budget (in £s).

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